I want some.

Wine Market

Bordeaux has been a funny financial beast the past decade. With wealthy buyers around the world increasing (looking at you, China), the price per bottle bottle of Bordeaux went through the roof in the ought’s. Even throughout The Great Recession, people called for the bubble to burst, but it seemingly continued to grow. But perhaps it’s not a burst we’ve been waiting for. Maybe it’s more of a slow leak.

CNBC published an article this week stating that Bordeaux market “…is down a full 33 percent from its peak.” It seems the focus has shifted from Bordeaux to Burgundy. I don’t’ hear any young people talking about buying Bordeaux. It’s all about finding new, interesting, off the beaten path bottles. I have no doubt attention will return to Bordeaux in the future, but the market is clearly tired of these wines and their prices. When they come back down to earth, maybe Bordeaux will be a nouveau-hipster wine. A real retro purchase in five to ten years.

The craft beer and mixologist cocktail-culture, along with a really rough economy has hit the wine industry hard. Fortunately, countries like the USA are keeping the industry going, but it seems really odd to think of Italy as anything but a wine-drinking society. Wine times, they are a-changing. Check out that article. Good info, and some good charts for you. Cheers.

What would you pay for an acre of vineyard land? Ten, twenty, thirty grand? Don’t forget you’ll have to buy and plant the vines, trellis systems, etc. etc. It adds up. How about $200,000 per acre? $1 million? If you’ve got the cash, you can find the land for that.

It’s a way to preserve capital…You’re buying Treasury bonds today at 2%. What would you rather buy, US treasury bonds or a piece of grand cru in Burgundy where you’re getting 1%–and the dividend is bottles of wine! So it’s not a bad deal!

Last week, The Atlantic reported that there is a forthcoming global wine shortage. They cited research by Morgan Stanley and had a nice little graph to boot. Even CNN picked it up. As you can imagine, the wine world sort of freaked.

But fear not! Just days later, reports emerged debunking the Morgan Stanley report. The SF Gate and Reuters both cranked out articles claiming just the opposite. The Reuters article that’s linked there explains a lot. Go on, click it. Click that link. If you don’t want to though, here are some telling paragraphs from it:

But if you look closely at the Morgan Stanley report, it starts to look less like a dispassionate analysis of supply and demand dynamics in the wine world, and more like an aggressively-argued attempt to put forward one particular investment thesis as strongly as possible. What’s more, the investment thesis is not, particularly, based on the existence of any present or future wine shortage; it’s simply trying to present the idea that demand for Australian wine exports is likely to rise, and to justify the fact that a company called Treasury Wine Estates is the bank’s “top Australian consumer pick”. (The report was written by Morgan Stanley Australia.)

To create the first chart, Morgan Stanley just took the second chart, added 300 million cases to the red line, and then — this is pretty cunning — simply deleted 2013 altogether, so that the uptick at the end disappears. (The 300 million number is Morgan Stanley’s estimate of the annual demand for “non-wine uses” of wine.)

If you like charts though, check out that link. It’s pretty good. So it seems that, for now, we’re in the clear. Plenty of wine for all. Clearly I’m still laying down a few bottles either way though. And besides, there’s always whiskey.

You may recall a handful of posts I wrote in years’ past about the huge rise in Chinese wine buying. Around 2008, the Chinese government cut tariffs on wine imports by 80%, so you can imagine how things took off. But now it seems the Chinese government is putting some brakes back on. Wine-searcher.com reported recently about new austerity measures that have been imposed after “…estimates for spending on banquets and entertainment were made public by researchers in early 2012, the figure was put at $50 billion to $145 billion per year.” Big time money, and not a lot of austerity there, huh?

In 2013, these measures (I’m not quite sure what the measures entail) took effect. Feel free to read the linked article above to the details, but here are the key figures they’ve seen so far:

“…more than 50 percent of China’s medium- to large-sized companies have slashed their corporate spending.”

The same vintage of Chateau Lafite was trading at $1,930/btl now trading at $970

Average price per bottle of local spirits baijiu dropped to $164 down from $323

60% to 80% of all Chateau Lafite bottles in China is now counterfeit.

I can’t say I’m shocked by the drop. The good times can’t always roll that hard. Given the philosophy of the government, it seems like there will be a bit of a roller coaster for the foreseeable future, albeit hopefully with slightly less steep drops.

Talk about pouring some out for your homies. Treasury Wine Estates, an Australian-based company, is now the all time champ. One of the largest wine companies in the world, Treasury recently announced they’re writing off $145 million in wine. Seems America got over the Australian wine fad a few years ago. Think about it – when was the last time you bought some Australian wine with a kangaroo on the bottle? You’ve moved on, right?

Flushing some? Yes. Probably writing it off their books more than anything? Oh yeah. I can’t imagine what sort of environmental impacts pouring that much wine down the drain would have. Although, that would be a pretty interesting little side story. Can they do that? Must it be filtered first? Interesting.

Anyway, let’s not cry too big of a river here. I’m 100% sure Treasury didn’t actually dump any decent wines. Good wines keep for years, and I’m sure they have some cellars they can line with cases for now. What we’re probably talking about here is the cheap stuff – non-age worthy white wines sold in jugs. And in terms of how Treasury stores it, probably in giant vats. I’m imagining this stuff being shipped around in giant railroad tanker cars. There’s another story I’d like to read. I bet it’s true.

After the sale of The Wine Advocate (henceforth: TWA) a few months ago, wine writer Antonio Galloni decided to jump ship. Perhaps a wise move, given that Robert Parker, TWA’s founder would eventually be stepping down and the publication potentially losing some of its power. Okay, no big deal. Galloni then went on to start his own website reviewing wines. Also no big deal.

But then Galloni posted on his website that he would not be giving his recent reviews of Sonoma wines to TWA, and instead keeping them for himself. The legality can be argued there (further review of contracts would be needed), but certainly a jerk move and the first hints of some bad blood. Today, the internet blew up with reports of TWA suing Galloni for breach of contract, defamation, and fraud. Seriously, Google it – I’m sure you’ll find plenty of results related to this story. I found more details of the case on Inside Scoop SF, here.

The sale of TWA was already fairly poorly handled from a marketing and brand perspective. Despite Galloni no longer being associated with TWA, this is sure to muddy the waters further for a publication desperate to save its reputation. More to come, no doubt.